Healthcare ETFs XLV and FBT offer sharply different approaches-one broad and low-cost, the other biotech-focused and higher risk. See how their fees, returns, volatility, and holdings stack up before choosing where to invest
Investors looking to tap into the healthcare sector have a range of exchange-traded funds (ETFs) to consider, but two of the most prominent options-State Street Health Care Select Sector SPDR ETF (XLV) and First Trust NYSE Arca Biotechnology Index Fund (FBT)-take fundamentally different approaches. XLV offers broad exposure to the S&P 500's healthcare companies, while FBT zeroes in on a concentrated basket of biotechnology stocks. Understanding the differences in cost, diversification, performance, and risk is essential for anyone weighing these funds for their portfolio.
Both funds are well-established, with XLV launching in 1998 and FBT in 2006. Yet their strategies, holdings, and risk profiles diverge sharply, making the choice between them less about which is "better" and more about which aligns with an investor's goals and risk tolerance.
Cost, Size, and Structure
One of the most immediate distinctions between XLV and FBT is cost. XLV charges an expense ratio of just 0.08%, making it one of the lowest-cost sector ETFs available. FBT, by contrast, comes in at 0.55%, reflecting its more specialized focus and equal-weighted structure. This difference in fees can add up over time, especially for long-term investors.
Asset size also sets the two apart. XLV manages $40.6 billion in assets, dwarfing FBT's $2.8 billion. The larger scale of XLV can translate to greater liquidity and tighter bid-ask spreads, which may matter for investors trading in size. FBT's smaller asset base is typical for niche sector funds, but it remains sizable enough for most individual investors.
In terms of holdings, XLV owns 60 stocks spanning the healthcare sector, with heavy weights in giants like Eli Lilly (15.95%), Johnson & Johnson (10.69%), and AbbVie (7.51%). FBT, on the other hand, holds 30 biotechnology companies, each with roughly equal weight. Its top positions include Corcept Therapeutics, NeoGenomics, and Veracyte, none of which individually dominate the fund.
Performance and Volatility
Recent performance highlights the trade-offs between broad healthcare exposure and a concentrated biotech bet. Over the 12 months ending July 15, 2026, FBT delivered a total return of 52.4%, far outpacing XLV's 21.5%. However, this outperformance comes with higher volatility and deeper drawdowns. FBT's five-year maximum drawdown reached 29.9%, compared to XLV's 17.1% over the same period.
Longer-term growth also reflects these dynamics. A $1,000 investment in FBT five years ago would have grown to $1,506, while the same amount in XLV would now be worth $1,335. FBT's beta of 0.66 suggests it is somewhat less volatile than the overall market, but still riskier than XLV, which has a beta of 0.56. Notably, XLV pays a dividend yield of 1.6%, while FBT pays none, making XLV more attractive to income-focused investors.
For those interested in how sector ETFs compare across asset classes, a recent analysis of long-term bond funds such as IGLB and VGLT-available here-shows how risk, yield, and volatility can differ even within seemingly similar investment categories.
Choosing Between Diversification and Growth
The decision between XLV and FBT often comes down to an investor's appetite for risk and their view on the biotechnology sector's prospects. XLV's broad healthcare exposure means it is anchored by large, stable companies that tend to be less volatile and more resilient during market downturns. Its low fee and dividend yield may appeal to those seeking steady, long-term growth with some income.
FBT, by contrast, is designed for investors willing to accept higher volatility in pursuit of outsized gains. Its equal-weighted approach means that breakthroughs or setbacks at any one company can have a meaningful impact on returns. The lack of a dividend and the sector's history of sharp drawdowns make FBT a less suitable choice for those seeking stability or income.
Both funds provide targeted access to healthcare, but their differences in scope, cost, and risk profile mean they serve distinct roles in a diversified portfolio. Investors should consider how each fits with their broader asset allocation, time horizon, and tolerance for volatility.
Understanding Sector ETF Risks
Sector ETFs like XLV and FBT allow investors to focus on specific industries, but this concentration can amplify both gains and losses. While broad funds such as XLV can help smooth out company-specific risks, more focused funds like FBT are vulnerable to swings in sentiment, regulatory changes, and scientific breakthroughs or failures that disproportionately affect biotechnology stocks.
Expense ratios, liquidity, and dividend policies are all important factors to weigh alongside historical returns. Investors should also be aware that past performance does not guarantee future results, and that sector leadership can shift over time as market conditions and innovation cycles evolve.
Healthcare is a diverse sector, encompassing pharmaceuticals, medical devices, insurers, and biotech firms. ETFs that track the entire sector, like XLV, tend to be less volatile because they include a mix of business models and revenue streams. Biotech-focused funds such as FBT, while offering the potential for rapid growth, are more exposed to the risks of drug development, regulatory approval, and market adoption. Understanding these distinctions is key to making informed investment decisions in the sector.
